“Creating good-paying jobs, gaining energy independence, and tackling climate change are some of the most pressing challenges we face as a nation,” said Congressman Van Hollen. “To address them all, we need to accelerate the development and deployment of clean energy technologies. This legislation will provide state and local Green Banks the support they need to jump-start innovative renewable energy and energy efficiency projects. Action to prevent the most harmful impacts of climate change is long overdue, and the creation of a national Green Bank is one way we can build a 21st century clean energy economy that spurs growth in industries that create more good-paying American jobs."

“Connecticut launched the first-ever Green Bank in the country in 2011, and it’s attracted over $800 million of investment in clean energy since,” said Senator Murphy. “Green Banks bring together the public and private sectors to save customers money, create good jobs, and help the environment. The Connecticut model is proof that Green Banks work. I’m glad I get to work alongside Congressman Van Hollen to reintroduce the Green Bank Act and spark billions of dollars of new investments in clean energy.”

National Green Bank legislation was first proposed in 2009 and last reintroduced in 2014. Both bills received bipartisan support. Since then, the number and size of Green Banks have grown rapidly. Green Banks now exist in California, Connecticut, Hawaii, Montgomery County (MD), New York, and Rhode Island. The National Green Bank seeks to accelerate this growth by making it easier for Green Banks to access capital.

“A lack of access to capital is the single biggest barrier for Green Bank growth,” said Reed Hundt, CEO of the Coalition for Green Capital (CGC). CGC, a nonprofit organization, has consulted on establishing Green Banks for state and local governments across the country. “There is enormous pent-up demand for these institutions, which are designed to be financially self-sufficient, but states and cities face such budget constraints that it’s difficult for them to come up with the funds. The Green Bank Act directly addresses this barrier.”

Green Banks are public finance authorities that use limited public dollars to leverage greater private investment in clean energy. Green Banks accomplish this by providing financing, securitization, and other forms of market development support for clean energy projects and organizations. The National Green Bank would provide a comprehensive range of financing—including loans, loan guarantees, and other forms of risk mitigation—on a competitive basis to local Green Banks. The National Green Bank would solely be a pass-through for allocating funding to qualified institutions, meaning authority over project selection and management would remain with local Green Banks. The National Green Bank would have an initial capitalization of $10 billion, and a maximum capitalization of $50 billion.

“The Green Bank Act of 2016 will use the historically low cost of capital to drive investment in critical infrastructure in the United States,” said Doug Sims, Director of Strategy and Finance and the Natural Resources Defense Council and Co-Manager of the Green Bank Network. “The Act ensures that decisions will be made at the local level to address local needs. If enacted, the Green Bank Act will spawn green banks all over the country. These banks will learn how to quickly scale green investment from the existing Green Banks that are part of Green Bank Network. The Banks in the network are already demonstrating the many benefits of the green economy.”

“A National Green Bank would be a game changer for accelerating clean energy growth at the state level,” said Bryan Garcia, President and CEO of the Connecticut Green Bank. “In Connecticut, we are seeing more and more private investment in our state's clean energy economy and the National Green Bank would expand this public-private partnership for energy security, job creation, and climate protection.” According to its most recent financial report, the Connecticut Green Bank sparked $365 million in private clean energy investment in the past year, numbers that could grow with support from the National Green Bank.

Monday, July 18, 2016

The Coalition for Green Capital is excited to provide the
latest and greatest thinking on the Green Bank concept in its new GreenBank White Paper!

The concept of a Green Bank—a financing institution that
leverages private capital into clean energy projects—has been around for a
while. The Coalition for Green Capital (CGC) has been driving the Green Bank
movement in the US since 2009. With support from CGC, Connecticut established
the first state Green Bank in 2011, and New York established its own Green Bank
shortly after in 2013.

Fast forward to now: the Connecticut Green Bank has supported
more than $663 million in project investments, while the New York Green Bank has
supported more than $200 million in project investments and has an active
project pipeline of $338 million.

Over the past few years, other states took notice of CT and
NY’s early success with the Green Bank model. States such as Rhode Island and
Hawaii have created Green Banks of their own, and many more states are
currently working with the Coalition for Green Capital to develop Green Banks
of their own. CGC has also been working with a few countries and even some
counties to set up Green Banks. Montgomery
County, MD recently
created its own Green Bank, the first county-level Green Bank in the US.

In performing its Green Bank work across so many
geographies, CGC has developed a wealth of expertise and experience in the
realm of Green Banks. Though every Green Bank must be built to serve the unique
features of its clean energy market, certain common features link all Green
Banks. Those features, as well as information on existing and developing Green
Banks, and their various financing products and market development activities, are
detailed in CGC’s GreenBank White Paper.

Last
week, Petros PACE Finance announced that it has funded approximately $1 million
in energy upgrades for HELLER Machine Tools. The energy efficiency improvements
are expected to reduce energy consumption and related costs by 23 percent.
HELLER is the first company to take advantage of C-PACE in the City of Troy,
which, with the help of Lean & Green Michigan, created a PACE program in
February.(http://prn.to/29BrEgk)

Connecticut Green Bank Finances Largest Project to Date

The Connecticut Green Bank (CGB) announced last week that it
has financed its largest solar project to date. Through the program CT Solar
Lease, the CGB facilitated a transaction between C-Tec Solar and Lesro
Industries, adding to the growing list of projects it has mobilized. The solar
panels, installed by C-Tec Solar, will cover 95 to 100 percent of Lesro’s
energy needs and slash the firm’s energy costs by upwards of $30,000. (http://bit.ly/29Kwcmy)

“Macquarie
will provide project capital that will be used to build and operate a fleet of
AMS’ distributed energy storage projects located at host sites. The systems
will be used for ‘utility grid services including flexible and reserve
capacity, solar integration and voltage management, in addition to retail
energy services such as demand management, backup generation and enhanced power
quality.’” (http://bit.ly/29rkQpI)

“Las Vegas-based
data company Switch filed a lawsuit on Tuesday alleging that Nevada utility
regulators failed to treat the company equally when it denied the firm’s
application last year to cut ties with NV Energy and purchase renewable energy
independently. It is asking for at least $30 million in damages. It is also
asking to leave NV Energy and purchase power on the open market.” (http://bit.ly/29FUJMZ)

Friday, July 15, 2016

The Connecticut Green Bank (CGB) recently closed on its biggest
solar project financed to date—a 995 kW rooftop solar array was installed
at Lesro Industries, a local manufacturer. This deal exemplifies the value of
the Green Bank model.

The CGB sits at the center of the clean energy finance
market in Connecticut, and is tremendously flexible in how it operates. In the
Lesro deal, the CGB and its private partners deployed capital to finance the
solar project, and the CGB became the “third-party owner” of the project. This
allowed Lesro to avoid paying any upfront cost for the solar panels, and save
money every month by paying for the clean, cheaper-than-grid solar electricity produced
by CGB-owned panels on its roof.

The CGB also administers Connecticut’s successful Property
Assessed Clean Energy (PACE) program. This program allowed the CGB to secure
the stream of money-saving electricity payments with a PACE lien on the
property. The PACE structure provides greater security for investors—this is
crucial for increasing the flow of private capital into PACE deals.

Finally, the CGB agrees to buy all the Renewable Energy
Credits (RECs) generated by the solar project, allowing Lesro to capture their
monetary value and recognize savings immediately. This is also helpful for the
utilities in the state—the CGB sells a steady stream of RECs at predictable prices
to utility buyers.

By playing these roles of REC aggregator, third-party owner,
and PACE financer and administrator in the Lesro deal and many deals all across
the state, the CGB drives more clean energy deals in Connecticut and hastens
the development of a mature clean energy market in the state.

As CGB gets more deals done, market participants (such as
commercial lenders, contractors, appraisers, property-owners, etc.) get more
experience with financing clean energy projects, investors’ perception of risk
decreases as ability and willingness to underwrite more similar deals
increases. As a result, clean energy project capital for property owners will be
more accessible and cheaper.

Connecticut has proven the value of the Green Bank model
many times over, and we look forward to seeing more Green Banks in more states
enjoying similar success!

Wednesday, July 13, 2016

At the historic Paris climate
summit in 2015, governments raised their level of climate ambition and agreed
to hold global average temperature increases to well below 2 °C above
pre-industrial levels and to pursue efforts to limit temperature rise to 1.5 °C.
To achieve this goal, immediate, deep cuts in global carbon emissions are
required. Shifting to a low carbon growth pathway calls for massive investment
in renewable energy and energy efficiency.
Investments in clean energy have rapidly increased in the last 5 years
and reached a record level of $286 Billion in 2015. (UNEP, BNEF, Frankfurt-UNEP School; Global Trends in Renewable Energy
Investments, 2016). Despite the accelerated growth, the total amount invested
is still insufficient to meet the world’s climate goals.

A new report
by the International Renewable Energy Agency (IRENA) puts the investment needs
in stark terms. Closing the finance gap by 2050 requires doubling current
investment in renewables to $500 billion US dollars per year up to 2020, and
then increasing annual investment to $900 billion through 2030. IRENA notes
that public funding alone will simply not be enough to close this investment
gap, and the Paris agreements highlighted the role that non-state actors must
play in the low carbon transition. Private financiers- including institutional
investors, pension funds, insurance companies, endowments and sovereign wealth
funds – will play an increasingly central role in scaling up renewable energy
and energy efficiency investments. Mainstreaming private investment in clean
energy infrastructure will be critical to achieving the world’s climate goals. Green
Banks, such as the UK Green Investment Bank featured in the new IRENA report, are
well suited to help mainstream climate finance. Green Banks work hand-in-hand
with the private sector to mitigate risk – both real and perceived – in clean
energy projects. Using tools like credit enhancements, project aggregation and
standardization, Green Banks use public dollars to “crowd in” private sector
investments, by improving lending terms and increasing project bankability. Green
Banks also help connect developers with low-cost capital for clean energy
projects. IRENA conducted a survey of risk mitigation tools and found that use
of risk mitigants in many public finance institutions is limited– surveyed
institutions on average dedicated 4% of risk mitigation funds to renewables,
and several institutions had never implemented a risk mitigation tool for a
clean energy project[1].
Of course, many of these institutions do most of their investment outside of
the clean energy sector, but this still demonstrates a clear opportunity for
growing the use of these risk mitigation tools to increase private investment
in clean energy. Green Banks and other public
finance institutions play a key role in mitigating project risk and creating
track records for new energy technologies. Green Banks are also an efficient
use of public dollars as risk mitigants (like loan loss reserves and
subordinated debt) are repaid and then “recycled” back into Green Banks to
finance new rounds of projects. The latest IRENA report highlights the role of
risk mitigation as an important step to mainstreaming climate investment, and
demonstrates the clear benefits of Green Bank and other structured financing
models to help achieve the world’s climate goals.

Governments and public finance
institutions can also structure and design on-lending and co-lending options which
improve access to finance and build local lending capacity.

Green Banks are a special category
of financial institutions well positioned to catalyse the transition towards a
low-carbon, climate resilient development pathway. Innovative Green Bank
finance instruments address common barriers of entry into the clean energy market
and help mitigate risk inherent in low-carbon, climate resilient projects.

In an endeavor to lower barriers
to market entry and offer private investors improved access to capital,
Green Bank financial products are designed to optimize the capital debt
structure through mechanisms such as on-lending, loan syndication, subordinated
debt, convertible grants and convertible loans. As quasi-public entities, Green
Banks also offer various guarantees and risk instruments which reduce or
reallocate investment risk. A suite of risk mitigation instruments offered
by Green Banks are useful in addressing currency, liquidity, political, policy,
regulatory, credit and technology risk.

Guarantees are the most prominent
financial mitigation tools and they offer an efficient way of leveraging
private sector investment using limited public capital. Guarantees also have an
enormous potential to bolster private investment in clean energy. It is estimated that increased use of
guarantees could result in an additional USD 100-165 billion in private sector
investment in Low-carbon, climate resilient infrastructure over the next 15
years (Bielenberg et al., 2016,
referenced in IEA report). The most common forms of guarantees offered by
Green Banks and Development Finance Institutions include Government-backed Loan
Guarantees, Partial Risk guarantees and Export credit guarantees. Structured finance mechanisms aim
to scale up investment by making renewable energy investments available through
mainstream investment channels. Structured finance mechanisms address barriers
associated with renewable energy transactions, including high due diligence
costs and the small and discrete nature of some renewable energy and energy
efficiency projects.

Credit enhancements, standardised
contracts, loan-loss reserves and project aggregation are just a few of the
standardized finance mechanisms Green
Banks have incorporated into their deal structures to attract private sector
lending.

While the scale of the climate
burden calls for a raft of strategies to combat climate change, Green Investment
Banks are a promising first step on the path towards a low-carbon, climate
resilient trajectory.

Tuesday, July 12, 2016

At CGC we often get asked about the benefits of Green Banks to states. Most people understand the need to increase investment in clean energy infrastructure, but what is it about the Green Bank model that is helpful for this goal? Why implement a Green Bank to address clean energy challenges locally?

We've outlined a few of our responses here:

A) New institutions to focus on implementing new energy goals. – States
are extremely important to the structure, conduct and performance of the energy
sector – in many ways more than the federal government – and state Green Banks
are institutions that focus state efforts to fulfill their energy plans.
Whether these plans are meant to comply with the CPP or state clean energy
goals that are even more challenging to meet, it is very useful for states to
create these focused institutions.

B) State Green Banks, unlike
any other institution at the federal or state level, typically have three specific goals,
each of which are critical to moving the country to a clean energy platform
quickly enough to abate climate change before undesirable results become
inevitable:

a)Leverage
private capital into rapid expansion of clean energy markets. – Green Banks provide public capital, which is critical
to getting clean energy generation, distribution and efficient consumption, as
well as clean driven transportation, to occur at scale. Why? Because public
capital typically reduces the risk/reward calculation for private capital to a
point where private capital is willing to invest in these markets. The result
is that public-private investment grows substantially in volume and the private
capital provides 80% to 90% of the total investment.

b)Create the
markets – Green Banks convene
developers, private sector investors, and regulators so as to have holistic solutions
be deployed at scale.

c)Help states
use their limited resources more efficiently; taxpayer protection – Green Banks permit states to reduce or refocus rebate
programs where possible, and instead to assure that capital is returned over
time, with reasonable returns.

C) Consumer protection –
State Green Banks protect consumers, especially in low to middle income
quintiles. Many approaches to the energy sector assume consumers should bear
all the costs of moving from the carbon to the clean platform. That is
politically impossible and ethically unfair. State Green Banks unlike any other
institution have the mission of making sure that everyone has the opportunity
to pay less or the same for their energy needs.

Green Banks dispel three myths.

A) Myth one: there is plenty of
capital. There in fact are few sources of capital that is patient enough to
tolerate low risk and low return projects, but that is what carbon energy
comprises and what clean energy solutions also must be in order to compete
effectively with carbon energy solutions. Of course if the returns are really
high then there's always plenty of capital, but returns in energy markets
cannot be really high because existing electricity and transportation fuel
pricing is very low. The problem is that if you want consumers in a market to
choose clean energy solutions then the price has to be the same or lower. Trust
markets to make the switch to clean come quickly. For price to be effective
as a change agent, lower cost capital needs to enter the energy sector.

B) Myth two: regulation is
sufficient to move the economy to clean energy. The carbon tax, the Clean Power
Plan, cap and trade, building codes, and many other forms of regulation are
important and desirable, but they are means to ends, not perfect solutions.
It's unrealistic to imagine a regulatory system that imposes such high costs on
carbon energy that the move to clean energy occurs quickly – the core idea
would be to punish the economy in order to save the environment, and that idea
has a long history of failing to attract support save in some theoretical
circles. Besides, litigation, legislative changes, unpredictable prices,
innovation, competition and numerous other factors all stymie the ability of
regulators to predict the future, much less shape it, with perfection, and the
world does not have enough time to tolerate anything other than success in a
hurry. To achieve the necessarily rapid and massive switch from carbon to
clean, we must use market forces, especially price. Regulation alone is
never sufficient for massive change in market structure, conduct and
performance.

C) Myth three: private capital
always makes the right capital allocation decisions. This premise might have
been thought to have been undercut by the collapse of the financial markets in
September-October 2008. However, even for those who continue to assert the
primacy of private sector capital allocation decisions, there are two major
obstacles to efficient allocation of capital in energy markets: monopoly and
network effects. The utility distribution grid is either a natural monopoly or
close to it. It is intensely regulated for that reason. The combination of
monopoly and regulation blocks the free flow of capital. Agency capture is a
common problem that favors incumbents or at least militates against
competition. And as to network effects, they come in at least three kinds.
First, delivering electricity from a grid, or on a distributed basis, or
delivering efficiency measures are all much cheaper for a firm that serves
everyone in a community as opposed to merely some because the incremental cost
of adding a new user is reduced to materials but the upfront cost is huge.
Second, for electricity to flow its voltage must be balanced across a grid. And
the bigger the grid, the cheaper is the cost to achieve that balance. Third,
because demand shifts quickly over time and geographical location, anyone with
a big grid has a nearly insurmountable advantage over any other distribution
mechanism. (Very similar effects are found in all networks that deliver
anything, from FedEx to cable TV.) Monopoly and physics block the creation
of a truly efficient capital allocation system.

Monday, July 11, 2016

The New York Green Bank (NYGB) recently submitted its 2016
Business Plan which showcased a strong year of performance and plan for the
future.

Taken together, NYGB’s closed transactions are estimated to
have increased renewable energy capacity by 128MW and saved up to 1 million MWh
of electricity from efficiency measures. NYGB’s current portfolio of projects
is expected to reduce greenhouse gas emissions by up to 2.9 million metric tons—equivalent
to removing more than 37,000 cars from the road for 17 years. The Green Bank
has approximately $500 million in its active pipeline, with an additional $121
million in closed deals. As we reported last week, NYGB
recently closed a $25 million financing deal with solar provider Sunrun.

Looking forward, the Plan lays out three objectives for the
next year:

Put
ratepayer money to work, prudently: Commit $200 million to NYGB investments
over the next year, equating to an average of $50 million in closed
transactions per quarter.

Mobilize
private capital: Achieve an average, portfolio-wide mobilization ratio of
at least 3:1, driving towards a ratio of 8:1 across all NYGB investments by
2025.

On the drive towards self-sufficiency, NYGB provided data
that put it squarely on this trajectory. In the past year, the Green Bank’s
revenues more than doubled while expenses grew only 40%. A significant benefit
of all Green Banks is that their funding is preserved and repaid over time.
This means lower costs for taxpayers, and efficient use of government funds.

That being said, Green Banks should be viewed as a
complement to, not a replacement for, other public energy programs. In its
Plan, NYGB says it will continue to “take leadership roles in establishing
financing approaches and solutions” for other energy programs and objectives in
New York State. NYGB gives examples of potential partnership opportunities with
NY Prize
microgrid program, the State’s community solar initiatives, and businesses
providing services to low- and moderate-income customers. This approach fits
with the role that Green Banks play in geographies around the country: not only
developing new projects and driving scale, but also performing market
development and customer engagement activities that remove barriers to existing
programs across the state. For example, The Connecticut Green Bank conducted
outreach to customers and contractors to help build demand for residential
retrofits in the
State’s Smart-E program, connecting consumers with both financing and
available rebates.

Congratulations to the NYGB team on an impressive year—we’re
looking forward to seeing what’s next for New York and Green Banks around the
country!